AA & EA v. The SFC, and the Challenges that Remain for Subjects of Global Investigations

The interconnectivity of the global securities market means that aggressive regulators often pursue investigations and enforcement actions across multiple jurisdictions. Sometimes, jurisdictional boundaries and limits on the extra-territoriality of local securities laws can result in multiple governments pursuing the same matter. Additionally, cooperation arrangements enable government agencies to share information with their peer entities around the world.

With all this in mind, the subject of a global investigation may find it daunting to prepare a defence strategy that protects one’s rights across borders, as this requires a multijurisdictional understanding of legal rights and governmental power.

Parties facing global investigations involving the Securities and Futures Commission (SFC) can enhance this understanding through the lessons of the Court of First Instance’s judgment in AA & EA v The Securities and Futures Commission [2019] HKCFI 246, which was handed down on 11 February 2019. These lessons illuminate some strategic challenges to cross-border defence that persist, including:

1. The “Right to Silence” is Limited.

The AA judgment clarifies that where the SFC seeks transaction information under s. 181 of the Securities and Futures Ordinance (SFO), recipients of the information request have a right to not provide information, as privilege against self-incrimination is a “reasonable excuse” for not complying with the request.

Nevertheless, subjects facing SFC investigations must not misread this as being reasonable in all contexts. As the judgment points out, unlike in s. 181, the SFO expressly states that privilege against self-incrimination is not an excuse where the SFC requests information under s. 179 (production of records and documents) and s. 183 (information relevant to investigations). In those situations, a person must answer the SFC. Although that person may still claim privilege against self-incrimination, this claim only prevents that compelled answer from being used against the person in a criminal proceeding. It is not a right to remain silent—this means there is testimony which may potentially be shared with foreign authorities.

2. Expect the SFC to Meet its Secrecy Obligations, but Prepare for Potential Leaks Abroad.

Consistent with ss. 186 and 378 of the SFO, the SFC can disclose information to overseas regulators under certain conditions, including a statutory obligation of ensuring secrecy of its investigations. The Applicant in AA argued that the SFC failed to take reasonable steps to ensure the foreign regulators with whom it was sharing information complied with these secrecy obligations, as partly evidenced by information leaking to foreign media in that case.

The AA judgment, however, found that the SFC a) took secrecy seriously; b) constantly reminded its overseas counterparts of the confidentiality of the provided information; and c) received assurances that the counterparts would not circulate the information to third parties without the SFC’s consent.

There are two lessons here: First, based on AA, the SFC’s obligation to ensure secrecy is serious but it can often meet the obligation without difficulty through reminders and assurances appropriate for the circumstances. Second, there is a risk that overseas regulators—who are outside the SFC’s practical control—may lack the same appreciation of, or approach to, information security, even when intending to act in good faith.

A global defence strategy must therefore account for the worst-case scenario of information leakage causing both legal prejudice and harm to business and/or reputation.

3. Foreign Criminal Exposure Remains a Risk Despite SFO Protections.

Before the SFC can share information secured under ss. 179 or 183 with foreign authorities, it must meet another condition: if the information provider made a claim of privilege against self-incrimination, then the SFC shall not provide the information to a foreign authority for use in criminal proceedings against that person in that foreign jurisdiction.

Applying the standard in Koon Wing Yee v Insider Dealing Tribunal (2008) 11 HKCFAR 170, the AA judgment confirmed the evaluative factors the court uses to determine whether foreign proceedings are criminal in this context: the a) classification of the offence under domestic law; b) nature of the offence; and c) nature and severity of the potential sanction. On this last point, the AA judgment found the significant financial penalties involved in that matter to be a disgorgement of illicit profits—rather than a punitive or deterrent fine—which made those foreign proceedings civil, rather than criminal in nature.

This highlights that sometimes the difference between civil and criminal matters can be a matter of interpretation. Consequently, overseas criminal exposure derived from cross-border information sharing remains despite the ostensible SFO protections against it, subject to applicable foreign laws and rights.

Persons facing SFC investigations or other information requests should prudently prepare for how foreign governments may use the information that person provides to the SFC in a way that creates greater global liability. Preparing a multijurisdictional defence strategy at an early stage can maximise the chances of a successful outcome across borders.


Lawyer, Kobre & Kim